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Top 500 merchants’ median return rate of 3% is well below some broader industry studies.

Merchandise return rate is an important metric to online retailers, as it can indicate problems in web site content, customer service or fulfillment operations.

A high merchandise return rate may suggest that product descriptions on the merchant’s e-commerce are not accurate or complete, that call center agents aren’t adequately responding to consumer questions or that warehouse personnel are too often shipping the incorrect product or size. This year for the first time for the 2013 edition of the Top 500 Guide, Internet Retailer asked Top 500 merchants about the percentage of products returned and received a response from about 16% of the ranked retailers.

Although the numbers vary widely by merchant size, type and merchandise category, the median return rate of 3% is well below some broader industry studies. On average, data compiled from about 50 clients of retail consulting firm Kurt Salmon show that online consumers return 20% to 30% of orders of apparel and other soft goods. That compares to a return rate of less than 10% for hard goods like gifts, home products and toys.

At Drs. Foster & Smith, No. 127 in the 2013 Top 500 and a direct marketer of pet medicines and related pet supplies, several reasons account for how the company has been able to reduce its return rate from 5% a decade ago to around 2.28% today, says Internet marketing manager Gordon Magee.

The pick, pack and ship process is now nearly fully automated compared with a manual system used 10 years ago. Before automating, fulfillment center employees used paper invoices and packing slips to first pull products from off the shelf and then pick, pack and ship the order.

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Today Drs. Foster and Smith fulfillment employees use paperless scanners and an automated storage and retrieval system from Bastian Solutions, an Indianapolis-based developer of fulfillment and logistics programs, to pick, pack and ship orders.

The system has helped Drs. Foster and Smith to reduce the return rate by cutting down on the chances an order will be improperly prepared and shipped. Once the order has been placed the automated storage and retrieval system automatically directs the fulfillment employee to the exact product located in the warehouse. The product is then scanned and put directly into a bin on the conveyor belt and moved to the next station for further preparation.

The handheld scanners use different colors to tell shipping personnel if they have picked the right product according to the automated invoice. For example, if a product is scanned and the light is green it’s the correct piece of merchandise. But another color such as red may indicate a problem, Magee says. “Becoming automated has helped us to keep our return rate consistent for many years now and helped us generate huge shipping savings,” Magee says.

Drs. Foster and Smith also keep their return rate low by manually inspecting all packages before they are sealed and shipped. “We check to make sure the lid on a prescription bottle is on tight or that the bottle isn’t cracked and broken and is surrounded by enough packing material,” Magee says. “All prescription information also is carefully checked once more.”